What you need to know before making financial gifts

Financial advisors and tax experts across the United States issued a set of comprehensive guidelines this week to help individual taxpayers navigate the complexities of making monetary or investment-based gifts before the 2024 fiscal year-end. As many families look to transfer wealth to younger generations during the holiday season, professionals stress that understanding the current Internal Revenue Service (IRS) regulations is essential to minimize tax liabilities and ensure legal compliance. The guidance arrival coincides with the annual rise in charitable giving and family wealth transfers that typically occur in the fourth quarter. A primary focus of the new recommendations is the annual gift tax exclusion, which for 2024 allows individuals to give up to $18,000 per recipient without filing a gift tax return or tapping into their lifetime exemption. For married couples filing jointly, this amount doubles to $36,000 per recipient. Experts note that these limits apply to any number of people, meaning a donor could theoretically give $18,000 to ten different family members, totaling $180,000, while remaining entirely exempt from federal gift taxes. This strategy is frequently used by high-net-worth individuals to reduce the overall size of their taxable estate. Beyond simple cash transfers, the guidance highlights the strategic advantages of gifting appreciated assets, such as stocks or mutual funds. When an individual gifts an investment that has increased in value, the recipient inherits the original cost basis; however, if the recipient is in a lower tax bracket, they may pay significantly less in capital gains tax when the asset is eventually sold. Conversely, experts warn against gifting "underwater" assets—those worth less than their original purchase price—as the donor loses the ability to claim a capital loss on their own tax return, which could have otherwise been used to offset their own gains. Finally, the report addresses direct payments for medical and educational expenses, which remain one of the most efficient ways to provide financial support. Under current federal law, payments made directly to an educational institution for tuition or to a medical provider for healthcare services do not count toward the $18,000 annual limit. This provision allows donors to provide substantial financial assistance to grandchildren or relatives for high-cost needs while preserving their annual and lifetime gift tax exemptions for other purposes.